A Beefy TrioRare Hospitality sports three restaurant concepts: its flagship LongHorn Steakhouse, a chain of 152 midpriced steakhouses primarily in the Southeast and mid-Atlantic; Bugaboo Creek, a chain of 19 midpriced steakhouses in the Northeast; and The Capital Grille, 15 high-end steakhouses in the eastern half of the U.S. LongHorn is the workhorse of Rare's stable, providing nearly 70% of its sales. Modeled after a prototype Texan steakhouse, LongHorn serves choice beef with a full-service bar. Fourth-quarter revenue at LongHorn grew 12.8%, driven by the opening of 19 new restaurants in 2001 and 1.8% growth in
|At a Glance |
Rare Hospitality International (RARE:Nasdaq)
|52-week Range||$32.00 - $14.50|
|Market Cap||$536.6 million|
|Avg. Daily Volume||265,590|
|Company Web site|| |
|*Based on 2002 Estimates Source: Market Guide, Zacks, Company Reports|
The Capital Grille restaurants under the Rare banner account for about 15% of the company's sales. The Capital Grille is an upscale steakhouse and seafood restaurant, often compared to Smith & Wollensky ( SWRG). Its revenue increased nearly 30% in the fourth quarter, thanks to three additional restaurants opening over the past year and a 1.6% increase in same-store sales. Even as all three concepts have performed well, especially in a challenging economic environment, one analyst thinks the chains can weather a longer downturn and grow as the economy accelerates. "An economic recovery should benefit all of the company's concepts in the way of increased traffic and potential price increases," notes restaurant analyst Matthew DiFrisco of SunTrust Robinson Humphrey. "Already the company's concepts are well-positioned in terms of pricing: LongHorn has a lower average ticket than Outback Steakhouse; Capital Grille has a lower average ticket than Smith & Wollensky. Not only does more competitive pricing make the company's concepts more attractive in a slow economy, but it provides for more pricing opportunity, given an uptick in the economy." DiFrisco gives Rare Hospitality an outperform rating, and his firm has not provided banking services for the company.
Prudent ManagementRare has been conservative with its growth plans, its revenue and earnings estimates and its managed costs, hallmarks of successful restaurant operators. A combination of that discipline and a successful growth strategy gives DiFrisco reason to think Rare Hospitality may surprise investors in 2002. Management has offered guidance for this year's earnings estimates of $1.38 to $1.43 a share.
Toughing It OutAlthough the outlook for the year is bright, the first quarter will be challenging. The company estimates it will earn 40 cents to 42 cents for the period, compared with 43 cents in the year-ago first quarter. Rare management says same-store sales could decline as much as 1% at the LongHorn and Bugaboo chains and 2% at the upscale Capital Grille outlets in the first quarter of the year.
|Food for Thought |
Rare Hospitality's growth is well-done
|Year||Revenue (in millions)||Earnings per Share|
|*Estimates. Source: First Call, Company Reports, TSC Research|
Continued economic weakness will keep pressuring sales and margins, something the company realizes and has warned investors about. "We remain focused on growing sales by providing each guest in our restaurants a superior dining experience," said Rare Hospitality Chairman and CEO Philip Hickey Jr. in the company's fourth-quarter earnings release. "We believe that by continuing to add value through high-quality service and outstanding food, we will emerge from this current environment positioned to again extend our record of consistent, profitable growth."
Playing DefenseSmall-caps were not spared in last week's general market malaise. The best performer among those I like was my most recent pick, Alexandria Real Estate Equities ( ARE), which gained more than 3.5%.
|Conservative Barrel Stocks Hold Their Own |
But aggressive names are lagging behind
|Original Barrel Rating||Current Outlook||Company/Ticker||Date of Mention||Current Price||Mention Price*||Price Last Week||% Change From Mention||% Change Weekly|
|3||Positive||NetBank (NTBK:Nasdaq)||Feb. 6, 2002||$13.79||$13.45||$14.81||2.53%||-6.89%|
|2||Positive||(ENDO:Nasdaq)||Jan. 23, 2002||13.49||18.21||14.91||-25.92%||-9.52%|
|2.5||Positive||SurModics (SRDX:Nasdaq)||Dec. 19, 2001||33.91||34.60||33.79||-1.99%||0.36%|
|2.5||Positive||VitalWorks (VWKS:Nasdaq)||Nov. 21, 2001||4.55||4.30||4.85||5.81%||-6.19%|
|2||Positive||FPIC Insurance (FPIC:Nasdaq)||Nov. 14, 2001||13.32||12.83||13.60||3.82%||-2.06%|
|3||Positive||Witness Systems (WITS:Nasdaq)||Oct. 31, 2001||12.75||8.06||12.60||58.19%||1.19%|
|2.5||Market||Coastal Bancorp (CBSA:Nasdaq)||Dec. 12, 2001||30.40||27.84||30.44||9.20%||-0.13%|
|2.5||Market||Coinstar (CSTR:Nasdaq)||Nov. 7, 2001||27.80||19.96||28.03||39.28%||-0.82%|
|2.5||Market||Hibbett Sporting Goods (HIBB:Nasdaq)||Oct. 24, 2001||32.05||30.33||32.15||5.67%||-0.31%|
|2.5||Market||Quixote (QUIX:Nasdaq)||Oct. 3, 2001||17.73||21.44||18.00||-17.30%||-1.50%|
|3||Special Situation||Quanta Systems (PWR:NYSE)||Jan. 9, 2002||15.09||16.05||15.10||-5.98%||-0.07%|
|2||Avoid||Actrade (ACRT:Nasdaq)||Jan. 30, 2002||13.26||$20.65||$16.30||-35.79%||-18.65%|
|0.5||Avoid||Goody's Family Clothing (GDYS:Nasdaq)||Nov. 28, 2001||4.05||4.50||4.20||-10.00%||-3.57%|
|1||Avoid||Bridgford Foods (BRID:Nasdaq)||Oct. 10, 2001||10.75||13.18||10.75||-18.44%||0.00%|
|2.5||6.04||Empire District Electric (EDE:NYSE)||Jan. 16, 2002||20.53||21.23||20.98||-3.30%||-2.14%|
|2.5||2.43||Met-Pro (MPR:NYSE)||Oct. 17, 2001||14.35||11.16||14.00||28.58%||2.50%|
|2.5||4.62||Integra Bancorp (IBNK:Nasdaq)||Jan. 2, 2002||19.75||20.75||20.60||-4.82%||-4.13%|
|3||4.49||Alexandria Real Estate (ARE:NYSE)||Feb. 13, 2002||41.67||40.25||40.25||3.53%||3.53%|
|*Average price on date of mention. Source: TSC Research|
Actrade ( ACRT) continues to lack support after talk of accounting and management issues last week. I'd still avoid the stock, even though it's down nearly 50% in the past two weeks. After Tuesday's close, Endocare ( ENDO) announced a per-share loss of 1 cent, well ahead of consensus estimates of a 6-cent loss and a 92% improvement over last year's 23-cent loss. Market malaise is never good for small-cap names, like those in the Barrel portfolio. Good news is rarely rewarded, and bad news is almost always punished. Hence, it's hard to trade small-caps in this environment, but for longer-term investors, it's a good time to think about building positions.